Banks restructure Sh844bn loans on Covid cash crunch

CBK Governor Patrick Njoroge. FILE PHOTO | NMG

By BRIAN NGUGI
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Summary

• Personal and household loans topped the list of debt restructured since March when the Central Bank of Kenya (CBK) allowed lenders to offer relief to distressed customers after the country reported its first coronavirus infection.
• The CBK revealed Wednesday that banks had by end of June extended the repayment period of personal and household loans worth Sh240 billion.
• This is an equivalent of 30 percent of the gross lending to this segment.

Banks changed the terms of loans worth Sh844.4 billion by end of June, an equivalent of 29 percent of their total loan book, highlighting the depth of economic hardship the Covid-19 pandemic has brought on borrowers.

Personal and household loans topped the list of debt restructured since March when the Central Bank of Kenya (CBK) allowed lenders to offer relief to distressed customers after the country reported its first coronavirus infection.

The CBK revealed Wednesday that banks had by end of June extended the repayment period of personal and household loans worth Sh240 billion.

This is an equivalent of 30 percent of the gross lending to this segment.

It highlights the financial struggles of many workers who had borrowed loans on the strength of their pay slips only to later suffer pay cuts, unpaid leave or even layoffs in certain cases.

The CBK said businesses reviewed loans worth Sh604.4 billion in the period to June, led by firms in trade followed by real estate, transport, communication and manufacturing industries — sectors that have been hit hard by the effects of the Covid-19 pandemic.

“These measures have provided the intended relief to borrowers,” CBK Governor Patrick Njoroge said in a statement on following a meeting of the regulator’s Monetary Policy Committee (MPC) on Wednesday.

Under the CBK’s initiative to offer relief to borrowers, struggling individuals and companies can take a three-month repayment holiday, lengthen the tenure of their loans, or opt to just pay the interest for a period of time.

The relief also applies to credit card debt and mortgages.

Dr Njoroge said although measures imposed by the government to curb the spread of Covid-19 such as night curfews had affected business, the overall economy remained resilient in the second quarter supported by agriculture and the lifting of restrictions in key export markets.

Kenya’s confirmed Covid-19 positive cases rose to 19,125 yesterday, while the number of deaths jumped to 311, said Health Cabinet Secretary Mutahi Kagwe in a separate press conference.

The crisis has shut down the country’s vital tourism sector, hammered its fresh produce exports and severely disrupted other sectors such as construction, trade and transportation.

The government has halved its projected economic growth for this year to three per cent from an initial forecast of six per cent

In addition to allowing lenders to offer relief to distressed borrowers, the CBK has cut lending rates and lowered the ratio of cash that commercial banks are required to hold.

The government also reduced value-added tax by two per centage points to 14 per cent and imposed cuts on corporate and income tax.

The CBK on Wednesday kept its key lending rate unchanged at seven per cent, the third time in a row.

“The package of policy measures implemented since March are having the intended effect on the economy,” the MPC said in a statement, referring to a total of 125 basis points cut to the benchmark lending rate and the cut in the cash reserves banks are required to hold.

Private sector credit grew 7.6 per cent in the year to June, compared to 8.1 per cent in the 12 months to May, reflecting that banks are shying away from lending amid the pandemic.

The credit growth remained well below the central bank’s target rate of 12-15 per cent, a growth adequate to support economic development.